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Don’t whine about inflation rate

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Dear Dr. Don,
In February 2000, I bought some Series I savings bonds with a fixed rate of approximately 3.5 percent guaranteed. Now, I am told by the Treasury that because the inflation rate is negative, I no longer get my fixed rate for this period. Was this the right answer, or do I actually lose my fixed rate for the latest six-month period?
— L.Dy

Dear L.Dy,
I waited until after Nov. 1 to reply to your letter so I’d know what the new interest rate would be for the next six-month interest period on your Series I savings bond. I have good news — the inflation rate for the next six-month interest rate period on your bond is 1.53 percent. Your new composite rate for the next six-month interest period is 6.51 percent.

According to the Savings Bond Wizard, since issuance, you’ve earned an average yield of 6.28 percent on this bond. That includes the most recent six-month interest earning period when you earned no interest. Relax. You’re doing great with this investment. Your fixed yield at issuance is 3.4 percent while the inflation component changes with movements in the Consumer Price Index, or CPI.

I understand your frustration with the negative CPI rate in the most recent interest rate period. That said, you’ve got one of the best fixed-rate components ever in this Series I savings bond. It’s fair to be frustrated, but don’t express that frustration by selling these bonds.

I don’t have the information you had when you bought the bond, but it’s unlikely that it conflicts with the information on the TreasuryDirect Web site, which states:

The Secretary of the Treasury, or the Secretary’s designee, determines the fixed rate of return. The fixed rate is established for the life of the bond. The fixed rate will always be greater than or equal to 0.00%. However, the fixed rate is not a guaranteed minimum rate; the composite rate could possibly be less than the fixed rate in deflationary situations. The Secretary’s determination of fixed rates of return, semiannual inflation rates, composite rates, and savings bonds redemption values is final and conclusive.

The rules of the issue were established when you bought the bond. There’s no cheese to serve with your “whine.” Stay the course and enjoy the fruits of your investment over the next 21 years.

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